The Bureau of Labor Statistics will release October's consumer price index on Tuesday at 8:30 a.m., with markets bracing for signs that inflation pressures remain sticky despite some relief at the pump. The Energy Information Administration said gasoline prices declined by more than 4% in October, providing consumers with a respite after a surge that had added more than a dollar a gallon over the past year. However, the overall monthly reading is expected to show only modest improvement, according to consensus forecasts.
The consumer price index for all items is forecast to increase 0.3% for October, while core inflation, which excludes volatile food and energy costs, is expected to rise 0.2%, according to the Dow Jones consensus forecast. Both would be slower than September's respective monthly gains of 0.6% and 0.3%. There will be no annual reading for October because a government shutdown a year ago prevented the Bureau of Labor Statistics from collecting some data and compiling a full index level. Bank of America, using an estimated baseline for the period last year, projected the annual growth rates at 3.8% for headline inflation and 2.7% for core, both 0.1 percentage point higher than September and well above the Federal Reserve's 2% goal.
Federal Reserve officials have grown increasingly concerned that inflation driven initially by President Donald Trump's tariffs and the Iran war is proving more persistent than expected, with price pressures emerging in sectors beyond those directly affected by those shocks. Chicago Federal Reserve President Austan Goolsbee said Monday that across his district, business leaders and others consistently raise concerns about affordability and rising costs. Goolsbee said the current inflation run is defying normal expectations, with the situation intensified by massive investment in artificial intelligence data centers, which is creating demand for construction workers, electricity and equipment. "It was supposed to have gone away by now, and we're now starting to see the inflation kicking up in areas that probably weren't from oil prices and tariffs, like a bunch of services," he said.
Economic conditions remain generally strong, with gross domestic product expanding 3.4% in the third quarter and tracking at 3.5% for the final three months of the year, according to the Atlanta Federal Reserve. Nonfarm payrolls expanded by 165,000 in October while the unemployment rate edged lower to 4.1%, though inflation-adjusted wage growth has been negative. Markets are pricing in a better than 80% probability that the Federal Reserve will raise its benchmark interest rate by a quarter percentage point at its December meeting, according to CME FedWatch data. The Fed held rates steady in October.
Bank of America said it sees tariff impacts fading but that goods prices could be pushed higher because of artificial intelligence demand, while it remains cautious about sticky services prices and pressures from health insurance and autos. The bank views a December rate increase as likely barring an escalated stock market sell-off. Economist Stephen Juneau said in a client note that if the October inflation forecast proves correct, "it would effectively lock in another 25bp hike, all else equal." Goolsbee, who does not vote on rate policy this year but will in 2027, suggested current conditions could warrant action, citing the conventional wisdom to "be aggressive up front, to never let the economy overheat."
For borrowers and savers in the United States, persistent inflation pressures could mean higher interest rates ahead, while those with inflation-adjusted wages face continued pressure on purchasing power even as employment remains solid.